Fallon deal stokes agency buyout binge

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The sale of Fallon McElligott to Publicis is expected to fuel the already frenzied pace of consolidation and drive up prices as the ranks of independent agencies thin.

"I anticipate this being the year for everything that can get sucked up to get sucked up," said a high-level executive at a leading agency holding company. "If you look at the top 20 companies in every discipline, everything that is loose is getting absorbed by somebody."

And how. Snyder Communications is said to have narrowed bids, estimated to reach the nosebleed level of $2.5 billion, to two contenders: Havas Advertising and WPP Group. True North Communications, parent company of FCB Worldwide and Bozell Group, continues to seek international partners for FCB, and remains open to buying a second international network that could be added to Bozell.


Saatchi & Saatchi and Grey Advertising staffers are whispering about a possible merger of the two Procter & Gamble Co. agencies. Talk continues to swirl that Cordiant Communications Group's Bates Worldwide will be sold. And just last week, Leo Group and MacManus Group completed their megamerger, the first step toward Japanese ad giant Dentsu's taking a 20% stake in the new venture, which eventually will go public.

Consolidation is cutting across other marketing disciplines, with direct, promotion, multicultural and interactive shops being snapped up as well. Promotion powerhouse Frankel itself was consumed by Publicis only last month for an estimated $170 million.

The net effect is fewer acquisition targets. With Fallon swallowed up by Publicis for an estimated $130 million, only a handful of independent ad agencies with any weight remain, including Wieden & Kennedy, Portland, Ore; Deutsch, New York; and Doner, Southfield, Mich.

Wieden, however, might be edging closer to entertaining a sale. CEO-Global Chief Creative Officer Dan Wieden, who has adamantly rejected that notion, recently softened his tone. "It's not a time to sell," he said last month. Chief Operating Officer Dave Luhr said the company is focusing on building its own independent global network.

Still, West Coast agency executives believe the Portland shop will remain stubbornly independent. "I'm not sure of Dan's agenda," said one agency executive, "but he views it [the agency and its work] as a mission from God."

Others, too, state they will remain independent. "Our business model has worked very well for us," said Alan Kalter, Doner Chairman-CEO. "So we don't see a need to go the route of being acquired in order to stay competitive."

The inevitable result of a dwindling number of independents is that those left can practically write their own ticket. "Some of the [agencies] that are looking to remain players could be paying a high price to grab the free remaining independents," said the leading holding company executive.

Another holding company executive pointed out that although Deutsch, for example, could fetch a premium price -- in the $150 million to $200 million range -- Donny Deutsch has incentive not to sell since the 42-year-old CEO is still relatively young. Mr. Deutsch admits he's often courted. But he also said, "We have a formula that's working gangbusters right now," pointing out the shop has won 11 of its last 12 business pitches.

Insiders say his agency was wooed unsuccessfully by Publicis last year.


Skeptics, however, note every independent adopts a tough no-sell stance -- until the day a sale agreement is announced. "When they merge, they say they did it because clients need an international network," said one industry veteran.

"I think there are only a few healthy fruits on the tree," said Peter Krivkovich, president-CEO of Chicago-based independent Cramer-Krasselt. He, too, denied an interest in selling, but said he understands why other agencies have taken that route. "As margins get tighter and tighter in our business, that drives more and more people into the arms of others," he said.

Snyder, meanwhile, comes closer to a purchase. A spokesman declined comment. But speculation is raging that Havas is willing to outbid WPP -- ponying up as much as $2.5 billion, or 3.6 times estimated '99 revenue -- to increase its U.S. presence, especially in the wake of global rival Publicis snatching up Fallon.

"Havas needs to do something quick to get into the U.S.," an observer said.

An executive familiar with Snyder said a more reasonable price would be about half the figure being bandied about. "To go over the price [of about $1.1 billion]," he said, "you better [have] a desperate hole in your portfolio."

Contributing: Alice Z. Cuneo, Laura Petrecca, Beth Snyder

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